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Barrick's Profit Slides, but Earnings Beat

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Barrick Gold Corporation’s (ABX - Analyst Report) adjusted earnings (excluding one-time items) for the first quarter of 2014 plummeted to 20 cents per share from 92 cents in the year-ago quarter but managed to beat the Zacks Consensus Estimate by a penny. Lower metal prices and a decline in gold sales volumes led to the decline in earnings.

On a reported basis, net income in the first quarter was $88 million or 8 cents per share, down roughly 90% from net income of $847 million or 85 cents per share in the prior-year quarter. Profit for the reported quarter includes $113 million in unrealized foreign currency translation losses, $30 million in demobilization costs associated with the ramp-down of the Pascua-Lama mine and $18 million in gains on non-hedge derivative instruments.

Revenues fell around 22.6% year over year to $2,632 million in the reported quarter and missed the Zacks Consensus Estimate of $2,637 million. Average realized price of gold decreased 21.1% year over year to $1,285 per ounce. All-in costs declined 31.5% to $933 per ounce while all-in sustaining costs fell roughly 10.7% to $833 per ounce in the reported quarter.

Gold production fell to 1.59 million ounces in the quarter from 1.8 million ounces a year ago. Copper production declined to 104 million pounds from 127 million pounds in the prior-year quarter.

Regional Results

North America: The Goldstrike mine in the North American region produced 0.26 million ounces of gold in the quarter, up 13.9% year over year, at an average all-in sustaining costs (AISC) of $755 per ounce. The Cortez mine produced 0.23 million ounces, down 33.8% year over year. Production at the Pueblo Viejo increased 65.6% to 0.16 million ounces. Production at Lagunas Norte and Veladero mines declined 7.6% and 22.9% year over year, respectively. In North America, Other mines production increased 9.9% to 0.22 million ounces.

Australia Pacific: The region produced 0.31 million ounces in the quarter compared with 0.45 million ounces in the year-ago quarter. AISC was $847 per ounce, down from $1,076 per ounce in the year-ago quarter.

African Barrick Gold plc. (ABG): Attributable production of African Barrick Gold in the quarter was 0.12 million ounces compared with 0.11 million ounces in the year-ago quarter. AISC was $1,131 per ounce in the quarter, down 28.3% year over year.

Financial Position

Cash and cash equivalents stood at $2,672 million as of Mar 31, 2014, up roughly 14.1% from $2,342 million as of Mar 31, 2013. Total debt was roughly $13 billion, down around 8% from $14.1 billion a year ago.

Suspension of Pascua-Lama Mine

During fourth-quarter 2013, Barrick temporarily suspended construction activities at the Pascua-Lama mine, barring the requisite activities for environmental protection and regulatory compliance. Earlier in 2013, Chile's environmental regulator halted construction on its side of the project, and imposed sanctions citing "serious violations" of its environmental permit.

The ramp-down is expected to be completed by mid-2014. The company expects to incur costs of roughly $300 million in 2014 due to the ramp-down as well as for the environmental and social obligations.

Barrick stated that it will halt work in such a manner that will allow efficient and effective re-start when conditions permit. The decision to re-start will depend on certain factors like improved project economics, outlook for metal prices, and reduced uncertainty associated with legal and other regulatory requirements.

Portfolio Optimization

Barrick continues to take initiatives to optimize its portfolio and lower costs. The company has divested non-core assets for a total consideration of over $1 billion since Jul 2013, including the sale of the Kanowna and Plutonic mines in Australia and its 33% stake in the Marigold mine in Nevada in 2014.

Barrick also reduced 10% equity interest in ABG during the quarter, leveraging the substantial improvement in ABG's share price in 2014 and creating additional liquidity in the entity.

Barrick is in the process of completing advanced scenario plans for a range of metal price environments, which will enable it to respond and adapt rapidly to changes in market conditions.

Outlook

For 2014, Barrick has reaffirmed its gold production and AISC guidance. It expects gold production in the range of 6–6.5 million ounces. Barrick expects AISC to be $920–$980 per ounce.

The five core mines are expected to contribute about 60% of total production in 2014 at an average AISC of $750–$800 per ounce. Barrick remains on track to achieve run rate for annual savings goal of $500 million by the end of 2014.

The company reduced its copper guidance for 2014 to 410–440 million pounds from 470-500 million ponds to reflect the processing disruption at Lumwana. C1 cash cost guidance remains unchanged at $1.90–$2.10 per pound.

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